IRS Audits Frequency Rising

In addition to several new tax laws that will take effect in the next couple of years, IRS audits are also increasing in frequency. In the year 2000, the average person had a 1 in 202 chance of being audited; that number has risen to about 1 in 99 (http://www.msnbc.msn.com/id/31951548/ns/business-consumer_news/). The federal budget deficit is approximately $1.6 trillion, and the IRS estimates that the government is owed about $345 billion in taxes each year that it does not collect ($200 billion of which should be coming from individual income taxes). With numbers like these, it is no surprise that the IRS will increase the number of audits it performs.

The IRS uses a computer system to choose specific taxpayers for auditing, and certain factors may increase the likelihood that a person or business will be selected. If you claim less income on your tax return than you listed on other federal forms (W-2s and 1099s) or if you list a high number of deductions, something may be amiss with your tax return, and the IRS will want more information to find out. Those who take deductions for large amounts of charitable donations, especially when compared to other taxpayers earning about the same amount in wages, may also be audited in order to ensure that they are not abusing the system. Additionally, taxpayers who earn more than $100,000 per year are more likely to be audited than those with lower incomes.

For a full list of factors that may increase your chances of being audited, be sure to check out this article: http://www.boston.com/business/personalfinance/managingyourmoney/archives/2010/03/tax_audits_on_t.html.

Keep in mind, though, that a large portion of those taxpayers who are audited are selected randomly; for example, in 2007, there were 13,000 random audits conducted by the IRS. If you have any questions about filing your tax returns, be sure to check with a tax professional for assistance!